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Monday, January 28, 2013

A Dose of Reality for Energy Policy

Bruce Everett of the Fletcher School at Tufts University offers a healthy double-helping of reality in his essay entitled "Back to Basics on Energy Policy: For the past 40 years, political leaders have
promised that government can plan and engineer a fundamental
transformation of our energy industry They were wrong." It appears in the Fall 2012 edition of Issues in Science and Technology. He begins:

"In June 1973, President Richard Nixon addressed the
emerging energy crisis, saying that “the answer to our long-term needs
lies in developing new forms of energy.” He asked Congress for a
five-year, $10 billion budget to “ensure the development of technologies
vital to meeting our future energy needs.” With this speech, the
federal government set out to engineer a fundamental transformation of
our energy supply. All seven subsequent presidents have endorsed
Nixon’s goal, and during the past 40 years, the federal government has
spent about $150 billion (in 2012 dollars) on energy R&D, offered
$35 billion in loan guarantees, and imposed numerous expensive energy
mandates in an effort to develop new energy sources. During this time,
many talented and dedicated people have worked hard, done some excellent
science, and learned a great deal. Yet federal energy technology policy
has failed to reshape the U.S. energy market in any meaningful way."

For example, about 30% of that energy R&D spending went to nuclear power, with President Nixon forecasting 40 years ago that nuclear would provide half of the nation's electricity supply by 2000. But nuclear power plateaued at 20% of the electricity supply in 1991, and given the lack of new plants and the gradual retirement of older ones, it seems certain to be a declining contributor in the next few decades.

Over the last 40 years, the U.S. government has backed a number of renewable energy technologies: hydro-power, solar, wind, solar, geothermal, synthetic fuels including ethanol, burning municipal waste, and others. Over that time, the share of all these renewables in energy consumption went from 6% in 1973 to 8% at present. Hydropower and corn ethanol comprise more than half that total. Current projections from the Energy Information Administration hold that solar power will quadruple by 2035--at which point it will still be less than 0.5% of U.S. energy consumption.

The fundamental problem, Everett argues, is that showing something is possible at high cost is one thing, but commercializing it at low costs is quite another. He writes: "The mantra of the energy R&D program has always been, “If we can put
a man on the Moon, we can do anything,” but this comparison is wrong.
Apollo was a conceptual and technical triumph with no commercial
aspirations. Between 1969 and 1972, the United States landed 12
astronauts on the Moon at a cost of $12.5 billion (in 2012 dollars) per
astronaut. The purpose of the program was to accomplish a technically
difficult feat a few times despite the enormous cost. Civilian
technology requires the exact opposite: the ability to do something on a
large scale at a low cost."

As a matter of public policy, Everett argues, the government has shown a pattern of trying to force-feed commercialization before it is actually ready to happen, through subsidies to nuclear power, or synthetic fuels, or wind, or battery-powered cars. It's always politically enticing to promise that a few temporary subsidies will jump-start large industries with many new jobs, but the record in energy is that the subsidies are often long-lasting and large, while the subsidized companies are short-lived. Managers get their bonuses, but sustainable jobs aren't created. (And for those who argue that fossil fuels are subsidized as well, Everett points out that the taxes collected on oil use are vastly higher than any public support received by the oil industry.)

Everett doesn't emphasize the point, but the newfound ability of U.S. energy producers to access vast reserves of natural gas will reshape energy markets in manifold ways. I've posted in the past about "Unconventional Natural Gas and Environmental Issues" and also about my own preference for "The Drill-Baby Carbon Tax," which would be a policy of moving ahead with all deliberate speed in developing U.S. fossil fuel resources while also imposing a carbon tax and addressing the costs of other environment issues as well.

But after 40 years of watching the U.S. government try to force energy markets on to a different path, it's time for an alternative approach. The U.S. government should stop subsidizing commercial energy firms, and instead put that money into a dramatic increase in energy research and development.